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Covad gains on buyout rumor

Covad Communications Group Inc. (Nasdaq: COVD) was up 14 percent Thursday on continuing rumors it could be a buyout target.

Shares in the provider of high-speed data lines rose 20 percent on Wednesday, and were up 3 1/4 to 27 1/4 Thursday, but were still well below their 52-week high of 66 5/8. Though analysts said a takeover was unlikely, the stock may deserve some upside.

Some reports attributed the gains to the company's announcement its service had become available in Las Vegas, Nev. Covad said Wednesday its service will eventually be made available to more than 26,000 businesses and 272,000 homes in the Las Vegas area.

"On a relative basis, (the expansion) is not that meaningful ... it's probably the buy-out rumor," said Dan Ross, an analyst with Sanders Morris Harris, which doesn't have underwriting ties to Covad.

On March 23, Ross said issued a bullish outlook for the company; at that time there was a lot of calls from institutions, and the stock was only trading 7 and a half million shares. "It's already at 16 million this morning," Ross said.

He also said people have been saying the stock is oversold. "They're giving it away at 20 bucks," said Ross, who was a 12 to 18-month price target of $92, and a "strong buy" rating on the stock.

The takeover rumor doesn't make a lot of sense, according to analysts. Consolidation in the DSL space isn't expected until 2 or 3 years down the road. Covad is also seen to be one of the least likely targets. The rumored buyers, Northpoint (Nasdaq: NPNT) was up 7/16 to 17 9/16 Thursday and Rhythms NetConnections (Nasdaq: RTHM) was down 7/16 to 22 3/4.

The company issued another release Thursday morning, announcing an expansion of its services to Columbus and Dayton.

Covad is part of a 13-company consortium that agreed last month with Baby Bell phone company US West Inc. (NYSE: USW) to share phone lines regionally. It said it has entered into similar line-sharing agreements with two other Baby Bells, Bell Atlantic Corp. (NYSE: BEL) and BellSouth Corp. (NYSE: BLS).

Ross added that this is also a significant plus for the company.

Covad bought, a provider of branded Internet access, for about $387 million in a deal to deliver complete broadband Internet services to its customers through company-branded access in March.